Despite the Fed’s recent interest rate increase, this CNN Money article from Heather Long explains why homebuyers won’t see much of a difference relative to mortgage rates.
“Look out, mortgage rates are going up!”
That’s the fear mongering that some are telling homeowners and homebuyers after the Federal Reserve raised interest rates – a tad – off their historic lows Wednesday.
But when a realtor or well-meaning relative tells you to buy a house ASAP, remind them that the Fed rate isn’t the mortgage rate.
The current rate on a 30-year mortgage is 3.97%. That’s incredibly low by historical standards. Most experts don’t think mortgages will go much higher than 4% anytime soon.
The early indications are that rates barely budged after the big Fed announcement (and they may even go down).
“I don’t think [mortgage rates] are going up,” says Ed Yardeni, president and chief investment strategist at Yardeni Research. “Mortgage rates are really tied more to the bond market than the Fed funds rate.”
Translation: There probably won’t be much difference between buying a home now or next year.
Even if mortgage rates go up to 4.5% this summer, that would only add about $700 a year to the mortgage payments for a $200,000 home.
The other key thing to keep in mind is that as mortgage rates go up, home prices usually come down.
“As interest rates go up, we expect home prices will come down eventually. It doesn’t happen overnight,” says Karen Stone, a real estate broker for TOWN Residential in New York City.
That could be good for buyers. Right now many cities have been “seller’s markets.” There aren’t many homes for sale but there are a lot of people looking.
“In New York City, I’m still seeing bidding wars,” says Stone, who admits she’s even been surprised at the price some homes have sold for. “The last few years have been a ‘no rules’ environment.”
Now she’s starting to see a shift as buyers are saying, “Wait a minute. I’m not quite ready to spend that much more.”
People looking for homes say they would be “anxious” about mortgage rates going up, according to a recent survey from Berkshire Hathaway Home Services. Nearly 4 in 10 say they would be discouraged from even starting the process of looking for a home.
One CNNMoney reader named Parker, who is in her 20s, worries that her dream of owning a home is over.
“I’m waving goodbye to the hope of ever buying a house.”
But the same Berkshire survey also found that many buyers don’t have a clue what the mortgage rates are. It’s why real estate agents spend time educating home buyers about rates and what their monthly costs will be.
Potential buyers like Parker who are paying attention to the Fed should feel some ease because rates are unlikely to go up much, even by December 2016.
